CITY OF MILAN Washtenaw and Monroe Counties, Michigan AUDITED FINANCIAL REPORT. For the Fiscal Year Ended June 30, 2014

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1 Washtenaw and Monroe Counties, Michigan AUDITED FINANCIAL REPORT For the Fiscal Year Ended June 30, 2014

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3 For the Year Ended June 30, 2014 Table of Contents INTRODUCTORY SECTION Table of Contents FINANCIAL SECTION Page Independent Auditor's Report Management s Discussion and Analysis Basic Financial Statements: Government Wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Balance Sheet Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds Statement of Cash Flows Proprietary Funds Statement of Net Position Fiduciary Funds Statement of Changes in Net Position Fiduciary Funds Notes to Financial Statements

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5 For the Year Ended June 30, 2014 Table of Contents FINANCIAL SECTION Continued Page Required Supplementary Information: Defined Benefit Pension Plans Trend Information Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Major Street Fund Other Supplementary Information: Combining Balance Sheet Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Nonmajor Governmental Funds Combining Balance Sheet Nonmajor Special Revenue Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Nonmajor Special Revenue Funds Combining Balance Sheet Nonmajor Debt Service Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Nonmajor Debt Service Funds Combining Balance Sheet Nonmajor Proprietary Funds Combining Statement of Revenues, Expenses, and Changes in Net Position Nonmajor Proprietary Funds Combining Statement of Cash Flows Nonmajor Proprietary Funds Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

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7 F I N A N C I A L S E C T I O N

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9 PSLZ LLP Certified Public Accountants PLYMOUTH Dennis M. Siegner, C.P.A., C.V.A. BLOOMFIELD HILLS David R. Williamson, C.P.A WEST ANN ARBOR TRAIL Jane F. Wang, C.P.A WEST MAPLE ROAD P.O. BOX 5520 Rana M. Emmons, C.P.A. SUITE 101 PLYMOUTH, MI Jennifer A. Galofaro, C.P.A., C.V.A. BLOOMFIELD HILLS, MI TELEPHONE (734) Susan H. Bertram, C.P.A. TELEPHONE (248) Deborah M. Cox, C.P.A. Robert J. Sheu, C.P.A. Independent Auditor's Report December 22, 2014 To the Honorable Mayor and Members of the City Council City of Milan, Michigan Report on Financial Statements Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Milan, Michigan, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information 1

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11 Mayor and Members of the City Council City of Milan, Michigan December 22, 2014 Opinions-continued of the City of Milan, Michigan as of June 30, 2014 and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, the defined benefit pension plan trend information, and the budgetary comparison information, as identified in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Milan, Michigan s basic financial statements. The combining non-major fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining non-major fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining non-major fund financial statements are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 22, 2014, on our consideration of the City of Milan, Michigan s internal control over financial reporting on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Milan Michigan s internal control over financial reporting and compliance. Respectfully, PSLZ LLP Certified Public Accountants 2

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13 City of Milan Office of City Administrator 147 Wabash St. Milan, Michigan Jade Smith Telephone: (734) Fax: (734) Management s Discussion and Analysis As management of the City of Milan, we offer readers of the City of Milan s financial statements this narrative overview and analysis of the financial activities of the City of Milan for the fiscal year ended June 30, Financial Highlights The assets of the City of Milan exceeded its liabilities at the close of the most recent fiscal year by $ 20,620,394 (net position). Of this amount, $1,505,537 (unrestricted net position) may be used to meet the government s ongoing obligations to citizens and creditors. As of the close of the current fiscal year the City of Milan s governmental funds reported combined ending fund balances of $ 3,138,876, an increase of $165,662 in comparison with the prior year. Approximately 38% of this total amount, $1,186,564 is available for spending at the government s discretion (unassigned fund balance). The City of Milan s total bonded debt decreased by $708,000 during the current fiscal year. GASB Accounting Standards required recognition of $296,010 in other post employment benefit (OPEB) costs. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Milan s basic financial statements. The City of Milan s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Milan s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the City of Milan s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Milan is improving or deteriorating. 3

14 The statement of activities presents information showing how the government s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but unused, vacation leave). Both of the government-wide financial statements distinguish functions of the City of Milan that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Milan include general government, public safety, highways and streets, sanitation, and culture and recreation. The business-type activities of the City of Milan include the water and sewer system, storm sewer, and Mooreville sewer. The government-wide financial statements include not only the City of Milan itself (known as the primary government), but also a legally separate Brownfield Redevelopment Authority, D.D.A., and other nonmajor component units for which the City of Milan is financially accountable. Financial information for these component units are reported separately from the financial information presented for the primary government itself. The government-wide financial statements can be found on pages of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Milan, like other state and local governments, used fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Milan can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. 4

15 Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Milan maintains 19 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, Major Street Fund, Southside Sewer Debt and the Arkona Road Special Assessment Debt Service Fund which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Milan adopts an annual appropriated budget for its General Fund and Special Revenue funds. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. Proprietary funds. The City of Milan maintains three proprietary funds. Enterprise funds are used to report the same functions presented as businesstype activities in the government-wide financial statements. The City of Milan used the Enterprise Fund to account for its water and sewer activity as well as the other "nonmajor" proprietary funds. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City of Milan s various functions. The City of Milan uses an internal service fund to account for its fleet of vehicles and other equipment. Because both of these services predominantly benefit governmental rather than business-type functions they have been included within governmental activities in the government-wide financial statements. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City of Milan s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages of this report. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages of this report. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Milan s progress in funding its obligation to provide pension benefits to its employees. This information can be found on page 47 of this report. 5

16 The combining statements referred to earlier in connection with nonmajor governmental funds and proprietary funds are presented immediately following the required supplementary information. Combining statements can be found on pages of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. In the case of the City of Milan, assets exceeded liabilities by $ 20,620,394 at the close of the most recent fiscal year. By far the largest portion of the City of Milan s net position (81 percent) reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment); less any related debt used to acquire those assets that are still outstanding. The City of Milan used these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Milan s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. CITY OF MILAN Net Position Governmental Business-Type Activities Activities Total Current and Other Assets $ 4,644,127 $ 4,477,805 $ 2,286,405 $ 1,980,935 $ 6,930,532 $ 6,458,740 Capital Assets 7,282,378 7,277,486 22,815,970 23,472,435 30,098,348 30,749,921 Total Assets 11,926,505 11,755,291 25,102,375 25,453,370 37,028,880 37,208,661 Long-Term Liabilities 2,550,875 2,129,893 12,352,000 12,870,000 14,902,875 14,999,893 Other Liabilities & D.I. 1,456,004 1,457,652 49,607 31,902 1,505,611 1,489,554 Total Liabilities and Deferred Inflows 4,006,879 3,587,545 12,401,607 12,901,902 16,408,486 16,489,447 Net Position: Net Investment in Capital Assets 6,184,518 6,222,486 10,463,970 10,602,435 16,648,488 16,824,921 Restricted 1,672,992 1,533, , ,451 2,466,369 2,342,715 Unrestricted 62, ,996 1,443,421 1,139,582 1,505,537 1,551,578 Total Net Position $ 7,919,626 $ 8,167,746 $ 12,700,768 $ 12,551,468 $ 20,620,394 $ 20,719,214 An additional portion of the City of Milan s net position (12 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($1,505,537) may be used to meet the government s ongoing obligations to citizens and creditors. 6

17 At the end of the current fiscal year the City of Milan is able to report positive balances in all three categories of net position, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. The governmental activities net position decreased by $248,120 during the current fiscal year as shown in the table below: Governmental Business Activities Activities Total Program Revenues: Charges for Services $ 1,328,533 $ 1,352,199 $ 3,087,961 $ 2,858,262 $ 4,416,494 $ 4,210,461 Operating Grants 535, , , ,564 Capital Grants 28,018-75,000 34, ,018 34,300 General Revenues: Property Taxes 2,454,290 2,428, ,454,290 2,428,821 State Shared Revenues 475, , , ,310 Investment Earnings ,218 Transfers 73,271 74,266 (73,271) (74,266) - - Other 72,594 70,133 - (251,658) 72,594 (181,525) Total Revenues 4,968,477 4,884,219 3,089,854 2,566,930 8,058,331 7,451,149 Program Expenses: General Government 1,406,009 1,329, ,406,009 1,329,041 Public Safety 1,821,331 2,185, ,821,331 2,185,769 Public Works 1,623,052 1,592, ,623,052 1,592,363 Health and Welfare 31,086 33, ,086 33,637 Recreation and Culture 278, , , ,377 Interest Long-Term Debt 51,331 55, ,331 55,800 Other 5,059 5,405 2,046 7,082 7,105 12,487 Water and Sewer - - 2,938,508 2,935,003 2,938,508 2,935,003 Total Expenses 5,216,597 5,472,392 2,940,554 2,942,085 8,157,151 8,414,477 Change in Net Position $ (248,120) $ (588,173) $ 149,300 $ (375,155) $ (98,820) $ (963,328) Governmental activities. Governmental activities decreased the City of Milan s net position by $248,210, as revenues decreased, and expenses increased mostly due to increased OPEB costs, while other expenses increased moderately. Business-type activities. Business-type activities increased the City of Milan s net position by $149,300. Key elements of this increase are as follows: Revenue Increases from Large Customers $ 193,925 7

18 Financial Analysis of the Government s Funds As noted earlier, the City of Milan used fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City of Milan s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Milan s financing requirements. In particular, unrestricted fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City of Milan s governmental funds reported combined ending fund balances of $ 3,138,876, an increase of $165,662 in comparison with the prior year. Approximately 38% of this total amount ($1,186,564) constitutes unassigned fund balance, which is available for spending at the government s discretion. The remainder of fund balance is restricted to pay debt service ($294,096), to accomplish capital projects ($113,620), or other purposes ($1,265,276). $32,754 is non-spendable, and $246,566 is committed to accomplish specific purposes. The General Fund is the chief operating fund of the City of Milan. At the end of the current fiscal year unassigned fund balance of the general fund was $1,186,564, which represents 36% of total general fund expenditures. The General Fund showed a small increase in equity of $118, as operating revenues exceed expenditures, which was offset by transfers to other funds. Proprietary funds. The City of Milan s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net position of the Water and Sewer Fund at the end of the year amounted to $1,347,285. The total increase in net position was $136,790. Other factors concerning the finances of the fund have already been addressed in the discussion of the City of Milan s business-type activities. General Fund Budgetary Highlights Differences between the original expenditure budget and the final amended expenditure budget were $261,950 (including transfers to other funds) to accommodate non re-occurring expenses, and transfers to other funds. 8

19 Capital Asset and Debt Administration Capital assets. The City of Milan s investment in capital assets for its governmental and business type activities as of June 30, 2014 amounts to $30,098,348 (net of accumulated depreciation). This investment in capital assets includes land, buildings and system, improvements, machinery and equipment, park facilities, roads and highways. There were no significant capital events during the year. Details to the City s capital assets are continued in the notes to the financial statements on pages Long-term debt. At the end of the current fiscal year the City of Milan had total bonded and installment debt outstanding of $13,449,860, all but the USDA Revenue Bonds, are backed by the full faith and credit of the City. Additional information on the City of Milan s long-term debt can be found in note III.D. on pages Economic Factors and Next Year s Budgets and Rates The unemployment rate is still high in the State of Michigan and the State s budget plan may result in reduced state shared revenues. The City of Milan s charter rate after Headlee Amendment rollback was for general operating purposes; however, we will only levy 14.4 mills. These factors were considered in preparing the City of Milan s budget for the 2015 fiscal year. During the current fiscal year, unrestricted fund balance in the General Fund increased by $118. The City of Milan has presented a balanced budget in the fiscal year. The City Administration and City Council will have to continue its diligent review of operating costs, to insure that these funding plans are viable. 9

20 Requests for Information This financial report is designed to provide a general overview of the City of Milan s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City Administrator, 147 Wabash, Milan, MI

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23 Statement of Net Position June 30, 2014 Primary Government Governmental Business-type Component Activities Activities Total Units ASSETS Cash and Cash Equivalents $ 3,207,413 $ 680,524 $ 3,887,937 $ 306,526 Receivables (net of Allowance for Uncollectibles): Special Assessments 984, ,393 - Accounts 339, ,452 1,068, Due from Other Funds 16,078-16,078 - Due from Other Governmental Units 62,493-62,493 - Inventory - 77,865 77,865 - Prepaid Expenditures 34,719 5,187 39,906 - Restricted Assets Cash - 793, ,377 - Capital Assets (net of Accumulated Depreciation) 7,282,378 22,815,970 30,098,348 - Total Assets 11,926,505 25,102,375 37,028, ,547 LIABILITIES Accounts Payable 345,962 15, ,515 - Accrued Liabilities 125,649 19, ,551 - Due to Other Funds - 14,152 14,152 - Noncurrent Liabilities: Compensated Absences Due in More Than One Year 238, ,370 - Other Post Employment Benefits (OPEB) 1,214,645-1,214,645 - Due Within One Year 217, , ,000 - Due in More Than One Year 880,860 11,697,000 12,577,860 - Total Liabilities 3,022,486 12,401,607 15,424,093 - DEFERRED INFLOWS OF RESOURCES Unavailable Revenue-Special Assessments 984, ,393 - NET POSITION Net Investment in Capital Assets 6,184,518 10,463,970 16,648,488 - Restricted for: Capital Projects 113, ,620 - Debt Service 294, ,377 1,087,473 - Special Revenue Funds 1,265,276-1,265,276 Unrestricted 62,116 1,443,421 1,505, ,547 Total Net Position $ 7,919,626 $ 12,700,768 $ 20,620,394 $ 306, The notes to the financial statements are an integral part of this statement.

24 Statement of Activities For the Year Ended June 30, 2014 Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Functions/Programs Primary Government: Governmental Activities: General Government $ 1,406,009 $ 385,682 $ 37,925 $ 23,088 Public Safety 1,821,331 86,251 76,931 4,930 Public Works 1,623, , ,431 - Health and Welfare 31, Planning and Zoning 5, Recreation and Cultural 278,729 60, Interest on Long-Term Debt 51, Total Governmental Activities 5,216,597 1,328, ,287 28,018 Business-Type Activities: Water and Sewer 2,938,508 3,085,423-63,000 Other 2,046 2,538-12,000 Total Business-Type Activities 2,940,554 3,087,961-75,000 Total Primary Government $ 8,157,151 $ 4,416,494 $ 535,287 $ 103,018 Component Units $ 1,385 $ 225 $ - $ - General Revenues: Property Taxes State Shared Revenue Unrestricted Investment Earnings Franchise Fees Transfers In (Out) Total General Revenues and Transfers Change in Net Position Net Position Beginning Net Position Ending 12 The notes to the financial statements are an intergal part of this statement.

25 Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business-Type Component Activities Activities Total Units $ (959,314) $ - $ (959,314) $ - (1,653,219) - (1,653,219) - (406,973) - (406,973) - (31,086) - (31,086) - (5,059) - (5,059) - (217,777) - (217,777) - (51,331) - (51,331) - (3,324,759) - (3,324,759) - 209, , ,492 12, , ,407 - (3,324,759) 222,407 (3,102,352) (1,160) 2,454,290-2,454,290 5, , , ,594-72,594-73,271 (73,271) - - 3,076,639 (73,107) 3,003,532 5,888 (248,120) 149,300 (98,820) 4,728 8,167,746 12,551,468 20,719, ,819 $ 7,919,626 $ 12,700,768 $ 20,620,394 $ 306, The notes to the financial statements are an intergal part of this statement.

26 Balance Sheet Governmental Funds June 30, 2014 ASSETS Southside Arkona Rd. Other Total Major Special Asess. Special Asess. Governmental Governmental General Street Fund Debt Sevice Debt Sevice Funds Funds Cash and Cash Equivalents $ 1,340,584 $ 553,683 $ 202,429 $ 47,098 $ 1,056,439 $ 3,200,233 Receivables (net of Allowance for Uncollectibles): Accounts 153, , ,724 Special Assessments , , , ,393 Due from Other Funds 136, , ,277 Due from Other Governmental Units - 45, ,687 62,493 Prepaid Expenditures 31, ,701 34,455 Total Assets $ 1,662,570 $ 600,937 $ 533,057 $ 378,424 $ 1,718,587 $ 4,893,575 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE Liabilities: Accounts Payable $ 183,300 $ 41,196 $ - $ - $ 112,192 $ 336,688 Accrued and Other Liabilities 102,038 6, , ,388 Due to Other Funds 158,896 21, , ,230 Total Liabilities 444,234 69, , ,306 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue-Spec.Assessments , , , ,393 Fund Balances: Non-Spendable Prepaid Insurance 31, ,754 Restricted: Debt Service ,890 47,098 44, ,096 Capital Projects , ,620 Special Revenue Funds - 530, ,717 1,265,276 Committed , ,566 Unrestricted: Assigned Unassigned 1,186, ,186,564 Total Fund Balances 1,218, , ,890 47,098 1,139,011 3,138,876 Total Liabilities and Fund Balances $ 1,662,570 $ 600,937 $ 533,057 $ 378,424 $ 1,718,587 Amounts reported for governmental activities in the statement of net position are different because: Capital Assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 6,860,370 Internal Service Funds are used by management to charge the costs of motor pool to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. 238,395 Other Post Employment (O.P.E.B) Liability (1,214,645) Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. (1,103,370) $ 7,919, The notes to the financial statements are an integral part of this statement.

27 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2014 Southside Arkona Rd. Other Total Major Special Asess. Special Asess. Governmental Governmental General Street Fund Debt Sevice Debt Sevice Funds Funds Revenues Property Taxes $ 2,454,290 $ - $ - $ - $ - $ 2,454,290 Special Assessments , ,889 25, ,881 Licenses and Permits 49, ,658 Intergovernmental: Federal, State and Local 485, , , ,336 Charges for Services 349, , ,309 Fines and Forfeitures 11, ,676 Interest Other 147, , ,539 Total Revenues 3,499, ,264 54, , ,503 4,895,206 Expenditures Current: General Government 889, , ,946 1,129,500 Public Safety 1,745, ,719 1,767,062 Public Works 278, , ,938 1,211,265 Health and Welfare 31, ,086 Planning and Zoning 5, ,059 Recreation and Cultural 252, ,056 Debt Service: Principal ,000 90,000 45, ,000 Interest and Other Charges ,080 19,645 12,175 47,900 Capital Outlay 135, , ,513 Total Expenditures 3,337, ,270 71, , ,307 4,781,441 Excess (Deficiency) of Revenues Over Expenditures 161,879 25,994 (16,691) (129,613) 72, ,765 Other Financing Sources (Uses) Transfers In 16,645 15,000 32,151 10, , ,996 Transfers Out (178,406) (50,950) - - (30,743) (260,099) Total Other Financing Sources (Uses) (161,761) (35,950) 32,151 10, ,507 51,897 Net Change in Fund Balances 118 (9,956) 15,460 (118,663) 278, ,662 Fund Balances Beginning 1,218, , , , ,308 2,973,214 Fund Balances Ending $ 1,218,336 $ 531,541 $ 202,890 $ 47,098 $ 1,139,011 $ 3,138, The notes to the financial statements are an integral part of this statement.

28 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2014 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances total governmental funds $ 165,662 Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period: Capital Outlay Expenditures 147,513 Capital Outlay Expenditures-in Department 84,615 Depreciation (446,739) (214,611) The issuance of long-term debt (e.g. bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of longterm debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued; whereas, these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items: Principal Payments on Long-Term Debt Decrease in Compensated Absences Increase in OPEB Liability Internal service funds are used by management to charge the costs of fleet management and management information systems to individual funds. The net expenses of certain activities of internal service funds is reported with governmental activities. 190,000 (82,112) (296,010) (188,122) (11,049) Change in net position in governmental activities $ (248,120) 16 The notes to the financial statements are an integral part of this statement.

29 Balance Sheet Proprietary Funds June 30, 2014 Business Type Activities Enterprise Funds Governmental Activities Internal Service ASSETS Water Nonmajor Motor Pool & Sewer Funds Total Fund Current Assets: Cash and Cash Equivalents $ 584,388 $ 96,136 $ 680,524 $ 7,180 Accounts Receivable 729, ,452 1,307 Due From Other Funds ,892 Inventory 77,865-77,865 - Prepaid Expense 5,187-5, Total Current Assets 1,396,892 96,136 1,493,028 68,643 Restricted Assets: Cash Debt Retirement and RRI 793, ,377 - Total Restricted Assets 793, ,377 - Property, Plant and Equipment: Land and Land Improvements 981, ,712 - Building 8,155,412-8,155,412 - Water and Sewer Infrastructure 25,596,968-25,596,968 - Machinery, Equipment and Vehicles 4,585,928-4,585,928 1,890,965 Less: Accumulated Depreciation (16,504,050) - (16,504,050) (1,468,957) Net Property, Plant and Equipment 22,815,970-22,815, ,008 Total Assets $ 25,006,239 $ 96,136 $ 25,102,375 $ 490,651 LIABILITIES AND NET POSITION Current Liabilities: Accounts Payable $ 15,553 $ - $ 15,553 $ 9,274 Accrued Liabilities 19,902-19,902 7,261 Due to Other Funds 14,152-14,152 2,861 Current Portion of Contracts Payable (Act 99) ,000 Current Portion of Bonds Payable 655, ,000 - Total Current Liabilities 704, ,607 51,396 Long-Term Liabilities: Contracts Payable (Act 99) ,860 Bonds Payable 11,697,000-11,697,000 - Total Long-Term Liabilities 11,697,000-11,697, ,860 Net Position: Net Investment in Capital Assets 10,463,970-10,463, ,148 Restricted 793, ,377 - Unrestricted 1,347,285 96,136 1,443,421 49,247 Total Net Position 12,604,632 96,136 12,700, ,395 Total Liabilities and Net Position $ 25,006,239 $ 96,136 $ 25,102,375 $ 490, The notes to the financial statements are an integral part of this statement.

30 Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds For the Year Ended June 30, 2014 Business Type Activities Enterprise Funds Governmental Activities Internal Service Water Nonmajor Motor Pool & Sewer Funds Total Fund Operating Revenues: Intergovernmental $ - $ 2,538 $ 2,538 $ - Water Charges 925, ,877 - Sewer Charges 2,061,496-2,061,496 - Billing Fees 10,390-10,390 8,936 Other Charges for Services 87,660-87, ,200 Total Operating Revenues 3,085,423 2,538 3,087, ,136 Operating Expenses: Water Operating Expenses: Wages 62,076-62,076 - Administrative Fees 115, ,773 - Fringe Benefits 105, ,654 - Other Operating Costs 350, ,510 - Total Water Operating Expenses 634, ,013 - Sewer Operating Expenses: Wages 91,341-91,341 - Administrative Fees 115, ,773 - Fringe Benefits 136, ,463 - Other Operating Costs 653, ,451 - Total Sewer Operating Expenses 997, ,028 - Other Operating Expenses - 2,046 2, ,771 Depreciation 772, ,257 28,357 Total Operating Expenses 2,403,298 2,046 2,405, ,128 Operating Income (Loss) 682, ,617 (28,992) Non-Operating Revenues (Expenses): Interest Earned Interest Expense and Paying Agent Fees (535,210) - (535,210) (3,431) Total Non-Operating Revenues (Expenses) (535,064) 18 (535,046) (3,431) Income (Loss) before Operating Transfers and Contributions 147, ,571 (32,423) Operating Transfers: Operating Transfers (Out) (73,271) - (73,271) 21,374 Net Operating Transfers (73,271) - (73,271) 21,374 Capital Contributions 63,000 12,000 75,000 - Net Income (Loss) 136,790 12, ,300 (11,049) Net Position Beginning 12,467,842 83,626 12,551, ,444 Net Position Ending $ 12,604,632 $ 96,136 $ 12,700,768 $ 238, The notes to the financial statements are an integral part of this statement.

31 Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2014 Business Type Activities Enterprise Funds Governmental Activities Internal Service Water Nonmajor Motor Pool & Sewer Funds Total Fund CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers and Users $ 2,861,467 $ - $ 2,861,467 $ 173,980 Receipts from Quasi-External Transactions - 2,538 2,538 - Payments to Suppliers (1,232,553) (445) (1,232,998) (113,095) Payments to Employees (395,534) - (395,534) (79,829) Net Cash Provided (Used) by Operating Activities 1,233,380 2,093 1,235,473 (18,944) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfer to other funds (73,271) - (73,271) 21,374 Net Cash (Used) by Noncapital Financing Activities (73,271) - (73,271) 21,374 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Capital Charges 63,000 12,000 75,000 - Purchases of Capital Assets (115,792) - (115,792) (247,860) Proceeds from Long Term Debt 460, , ,860 Principal Paid on Capital Debt (978,000) - (978,000) - Interest Paid on Capital Debt (535,210) - (535,210) (3,431) Net Cash Provided (Used) by Capital and Related Financing Activities (1,106,002) 12,000 (1,094,002) (18,431) CASH FLOWS FROM INVESTING ACTIVITIES Interest Earned Net Increase (Decrease) in Cash and Cash Equivalents 54,253 14,111 68,364 (16,001) Cash and Cash Equivalents Beginning 1,323,512 82,025 1,405,537 23,181 Cash and Cash Equivalents Ending $ 1,377,765 $ 96,136 $ 1,473,901 $ 7,180 Balance Sheet Classifications: Cash and Cash Equivalents $ 584,388 $ 96,136 $ 680,524 $ 7,180 Restricted Assets Cash and Cash Equivalents 793, ,377 - Total $ 1,377,765 $ 96,136 $ 1,473,901 $ 7,180 Reconciliation of Operating Income to Net Cash Provided (Used) by Operating Activities: Operating Income (Loss) $ 682,125 $ 492 $ 682,617 $ (28,992) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation and Amortization Expense 772, ,257 28,357 (Increase) Decrease in Receivables (223,956) - (223,956) (156) (Increase) Decrease in Due from Other Funds - 1,601 1,601 (27,192) (Increase) Decrease in Prepaid Expenses (4,776) - (4,776) 58 (Increase) Decrease in Inventory (9,975) - (9,975) - Increase (Decrease) in Accounts Payable 10,761-10,761 7,614 Increase (Decrease) in Accrued Liabilities 6,007-6, Increase (Decrease) in Due to Other Funds Net Cash Provided (Used) by Operating Activities $ 1,233,380 $ 2,093 $ 1,235,473 $ (18,944) 19 The notes to the financial statements are an integral part of this statement.

32 Statement of Net Position Fiduciary Funds June 30, 2014 Retirement Health Agency ASSETS Savings Funds Cash $ - $ 82,878 Investments, at Fair Value 274,666 - Accounts Receivable - - Total Assets 274,666 82,878 LIABILITIES Accounts Payable - 80,952 Due to Other Funds - 1,926 Total Liabilities - 82,878 Net Position Held in Trust $ 274,666 $ - 20 The notes to the financial statements are an integral part of this statement.

33 Statement of Changes in Net Position Fiduciary Funds For the Year Ended June 30, 2014 Retirement Health ADDITIONS Savings Investment Income: Net Appreciation (Depreciation) in Fair Value of Investments $ 24,379 Total Additions 24,379 DEDUCTIONS Administrative (1,387) Benefits Paid (1,518) Total Deductions (2,905) Net Increase (Decrease) 21,474 Net Position Held in Trust: July 1 253,192 June 30 $ 274, The notes to the financial statements are an integral part of this statement. PSLZ LLP-Certified Public Accountants

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35 Notes to Financial Statements June 30, 2014 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Milan, Michigan, a Municipal Corporation, was established in 1831, chartered as a Village in 1885 and became a City in Located 12 miles south of Ann Arbor, 45 miles southwest of Detroit and 25 miles north of the Ohio State line, the City covers an area of 3.00 square miles. Milan is a Home-Rule City, which operates under an elected City Council which consists of the Mayor and six Council members, with the daily activity managed by the City Administrator and Department Heads. The City provides services to its more than 5,200 residents in many areas including law enforcement, fire protection, water, sewer, transportation, parks and recreation. As required by generally accepted accounting principles, these financial statements present the City of Milan and its component units, entities for which the government is considered to be financially accountable. The discretely presented component units are reported in a separate column in the combined financial statements to emphasize they are legally separate from the government. Each discretely presented component unit has a June 30 year-end. Discretely Presented Component Units The City of Milan Downtown Development Authority (DDA) Board is comprised of the Mayor and eight (8) members appointed by the City Council. The DDA is responsible for the creation of a development and financing plan for the downtown district or a development area within the district to promote economic growth. The Authority must obtain City Council approval of all development and financing plans. The annual operating budget and any modifications also require the approval of the Milan City Council. The City of Milan Economic Development Corporation (EDC) is governed by a nine (9) member board appointed by the City Council. The EDC was established to promote economic development within the City. The annual operating budget and any modifications require the approval of the Milan City Council. The City of Milan Brownfield Redevelopment Authority (BRA) was established pursuant to Public Act 381 of 1996 to promote the revitalization of environmentally distressed areas in the City. The BRA is governed by a seven member board appointed by the Milan City Council. The annual operating budget and any modifications require the approval of the Milan City Council. The City of Milan Historical Commission (HC) was established to preserve the Hack House property. The Historical Commission consists of a five (5) member board appointed by the Milan City Council. The annual operating budget and any modifications require the approval of the Milan City Council. 22

36 Notes to Financial Statements June 30, 2014 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued A. Reporting Entity Continued Discretely Presented Component Units Continued The above component units are discretely presented with the City s financial statements because they are legally separate and financially accountable to the City. Financial accountability is demonstrated by the City Council making the appointments to the respective Boards, approving the annual operating budgets and any amendments of each component unit, and approving the projects undertaken by the BRA and HC and the development and financing plans of the EDC and DDA (condensed financial information represented below). STATEMENT OF NET POSITION - COMPONENT UNITS Brownfield Downtown Other Nonmajor Total Redevelopment Development Governmental Component Authority Authority Funds Units ASSETS Cash $ 262,321 $ 35,005 $ 9,200 $ 306,526 Accounts Rec Cash $ 262,321 $ 35,026 $ 9, ,547 NET POSITION Unrestricted $ 262,321 $ 35,026 $ 9,200 $ 306,547 STATEMENT OF ACTIVITIES - COMPONENT UNITS Brownfield Downtown Other Nonmajor Total Redevelopment Development Governmental Component Authority Authority Funds Units Expenses $ - $ (1,385) $ - $ (1,385) Program Revenues Net Revenues - (1,160) - (1,160) General Revenues: Property Taxes - 6,043-5,818 Unrestricted Interest Change in Net Position 70 4,883-4,728 Net Position Beginning 262,251 30,368 9, ,819 Net Position Ending $ 262,321 $ 35,251 $ 9,200 $ 306,547 23

37 Notes to Financial Statements June 30, 2014 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued A. Reporting Entity Continued Joint Venture The City is a participant with London Township, Milan Township, and York Township in the Milan Area Fire Department. The Department was established by inter local agreements between the parties in 1980, and was established to provide fire protection services to the participating communities. The Department is governed by an executive committee consisting of the chief executive from each of the communities, along with appointed members by each community s governing body. No share ownership of the assets is available since the Department does not maintain the separate accounting of the fixed assets required by the agreements. Financial statements are available by contacting the Milan Area Fire Department. B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e. the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. 24